The Insurance Buying Guide: Analyzing Coverage

Once your needs analysis is completed, you're ready to start comparing disability income policies. Once again, this process usually works better if you use a formal method of review. Let's start by explaining the variables, that affect disability income insurance. The following are the items you can change to raise or lower your premium -- and to suit your needs.

  • The length of the elimination period (EP). This is the waiting period between when you make an income insurance claim
      and when the coverage begins. EPs work much like deductibles in auto or homeowners insurance -- the larger they are, the cheaper the coverage. If you have a substantial amount of savings that you are willing to spend to support yourself and your family in the event of a disability -- or if you have a short-term disability plan through work -- you can afford to select a longer elimination period.
    • The length of the benefit period (BP). This is the amount of time that the income insurance will pay benefits. It may pay for a year, two years, five years or even for the rest of your life. The longer the benefit period, the bigger the risk the insurance company takes -- so the higher your premium will be.
    • The amount of the monthly benefit. This may be the most important factor of all. The bigger the benefit, the more costly the policy.
    • The inclusion of optional benefits. These usually are based on your individual needs and financial goals -- the subjective factors that are difficult to quantify.

    Finally, there is one other consideration that profoundly affects your rates and the amount of coverage an insurance company will provide: your occupational classification. We'll cover this in more detail later in this chapter.

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